Weekly Options – Spreads
When most traders (who wind up becoming weekly options traders) first get into option trading, they usually start by simply buying just straight calls, puts, doing covered calls against stock they might own – or even selling naked puts.
But before long, those who really embrace options trading and ‘get it’ wind up moving up towards a bit more complicated option trading strategies like spreads – or option spread trading.
With option spread trading – including weekly options spread trading – you are able to really get the best performance – or at least let’s say – a ‘better’ performance than by using other trading methods or vehicles.
Weekly Options – Spread Benefits
Some of the benefits include:
1. Being able to enter trades with potentially ‘better’ reward possibilities with reduced capital.
2. Being able to quickly and easily limit risk on a trade – and create trades that have a defined risk.
A downside factor of using a weekly options spread instead of say just buying a straight call or put option can be the the total reward is limited.
For example, if we were slightly bearish on a stock and believed that it would be heading down over the next month, we could purchase a weekly option put spread on that stock where we buy a put at the money and then sell another put out of the money – creating a spread trade.
If we are right and the stock does move down, we could see a good return on that play – up to the point – or strike price – of where we sold that out of the money put. And this can be a very excellent return.
Weekly Options – Limited Reward
However, if the stock actually crashed and dropped dramatically – we would be unable to profit from that entire move due to the fact that we had sold that put. That sold weekly options put would ‘cap’ our potential gain.
But – again – we would still profit from the trade – and perhaps even more importantly – we did so while creating a position that had limited risk if we were completely wrong about direction and the stock moved against us – and we also created a position with an excellent reward potential when compared to the amount of capital we actually had to put up – especially when compared to using other vehicles such as trading the stock itself – or even purchasing straight calls or puts by themselves.
And, of course these types of option spread trades can be used with the new weekly options.
To learn more about how to trade options and weekly options for income click here